Financial Mistakes to Avoid During Divorce

I can’t say that “I’ve seen it all”, when it comes to financial mistakes and bad decisions that individuals make whilegoing through divorce, but I can warn about some of the most prevalent. If this article reaches only a handful of people going through this legal, emotional and financial life event, it will have served its purpose.

Underestimating your monthly expenses: I have often been retained to handle the financial piece of a client’s divorce. I am usually brought in after the filing and when I ask about the client’s monthly expenses and income, I am given the financial affidavit filed with the court (normally not an accurate picture). Here is where the problem lies, unless you first understand that people almost always underestimate their expenses, you won’t look for the small stuff that adds up quickly. Before you file for divorce, keep a record of every penny you spend, from parking meters to fast food. This will give you a realistic picture of your needs after the divorce. Will you need to go back to work, ask for a longer period of spousal support, etc?

Fighting tooth and nail to keep the house: This is sometimes a very emotional decision, especially if the children are still in the home. I have seen one party give up all of the other assets, just to keep the house. It is critical that you know without a doubt that you will be able to afford it. Owning up to the fact that it isn’t feasible, will save you and the children a lot of heartache and stress down the line. Having to say “No” to the children when it comes to participating in activities because it’s not in the budget, is simply not worth it just to pay the mortgage and keep in mind, you can’t eat the house….

Not insuring spousal maintenance and child support: Read the fine print in the settlement agreement! Did you know that spousal maintenance and child support stop if the payor dies? You can ask to purchase life insurance on the paying spouse to cover the term of the payment agreement. Then, in the unfortunate event that the paying spouse dies, you won’t be left destitute. It is a wise decision to own and pay for the policy yourself so that there are no worries about who the beneficiary is.

Not understanding credit card debt: If in the settlement agreement, all or a portion of the debt is awarded to a party, they are being ordered by the court to payoff that debt. But, what if that never happens? It is imperative that you understand that a joint card is a joint card. Just because the agreement was that a card would be paid off by your ex-spouse, doesn’t mean it was. You should ask for proof of payment after an agreed upon amount of time and demand that your name be removed from the card or have the card closed. Trust But Verify!!!! The credit card companies don’t care about the agreement; they will access any bank accounts with your social security number attached and take the money to cover the debt.

Deciding financial issues one at a time instead of understanding how they affect each other: Don’t agree to, for instance, to take the 401k in lieu of an account that would be awarded tax free. In short, with respect to your input on which assets and/or debt you agree to take, you could be missing huge tax implications, capital gains, investment losses, inflation and more. Have aCertified Divorce Financial Analyst (CDFA) look at the whole picture in order to determine suitable courses of action.

To learn about the other huge mistakes that are made, please contact Divorce Financial Consultants, LLC. 520-202-7659